On the eve of Thanksgiving, the Fifth Circuit Court unanimously ruled that the Treasury Department's Office of Foreign Assets Control (OFAC) exceeded the authority granted to it by Congress in sanctioning Tornado Cash. This ruling brings good news to cryptocurrency users who seek privacy protection. The court found that OFAC's sanctions against Tornado Cash were arbitrary and unreasonable because they targeted an open-source software without an owner, rather than individuals or entities abusing the software.
Key Points
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The Fifth Circuit Court ruled that OFAC's sanctions exceeded its statutory authority.
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Tornado Cash is a cryptocurrency mixer designed to enhance the privacy of transactions.
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The court ruled that immutable smart contracts do not constitute property that can be sanctioned.
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This ruling could have far-reaching implications for the future of cryptocurrency and smart contracts.
Tornado Cash is a cryptocurrency mixer designed to enhance privacy by mixing users' cryptocurrency transactions. Although this service has many legitimate uses, it has also been used by cybercriminals and hostile state actors to obscure their illegal activities. For these reasons, OFAC placed multiple Tornado Cash addresses on the Specially Designated Nationals and Blocked Persons List.
Under relevant legal provisions, Congress only granted OFAC the power to sanction specific individuals' property. The court noted in its ruling that the immutable smart contracts involved do not constitute property, and therefore OFAC cannot sanction them. The court emphasized that the key to distinguishing property is whether it can be owned, and immutable smart contracts are essentially software code that cannot be owned by anyone.
The court further pointed out that these immutable smart contracts are not contracts, despite their name potentially causing confusion. All contracts require at least two parties to participate, while immutable smart contracts have only one party, which is the software code itself. The court stressed that this ruling does not contradict blockchain legal cases, as in other instances, smart contracts are indeed agreed upon by both parties.
Additionally, the court noted that these immutable smart contracts are more like tools for executing services rather than the services themselves. This perspective may influence future legal interpretations of smart contracts.
The court emphasized its role within the constitutional framework, stating that while the uncontrollability of certain technologies may have negative real-world effects, the court must uphold the legal agreements reached by Congress rather than engage in "judicial legislation."
It remains unclear whether the government will request an en banc review of the ruling by the entire Fifth Circuit Court or whether it will seek review by the U.S. Supreme Court. Notably, the Eleventh Circuit still has similar cases pending. If it reaches a different conclusion, it may prompt the Supreme Court to intervene.
Overall, this ruling is good news for the crypto community, but the story is far from over.